Perpetual futures are derivative contracts that track an underlying asset's price without expiration dates, invented by BitMEX and now dominating crypto derivatives trading. Unlike traditional futures that settle on specific dates, perpetuals roll indefinitely, behaving like continuously resettling contracts. The funding rate mechanism keeps perpetual prices anchored to spot: when the perpetual trades above spot, longs pay shorts, creating selling pressure that pushes the price down; when below spot, shorts pay longs. Funding is typically exchanged every 8 hours, with rates annualized often reaching extreme values (100%+ during bullish mania, deeply negative during capitulation). Perpetuals enable leveraged directional bets without owning the underlying asset, making them popular for speculation and hedging. A trader can go 10x long ETH with $1,000 controlling $10,000 of exposure, though a 10% adverse move would trigger liquidation. Perpetuals trade on centralized exchanges (Binance, Bybit, dYdX) and increasingly on decentralized protocols (GMX, Hyperliquid). The funding rate creates unique trading opportunities: delta-neutral strategies can earn funding by going long spot and short perpetual (or vice versa), capturing funding payments without directional exposure. Perpetual open interest and funding rates are closely watched market indicators.
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